Thursday, February 18, 2010

The George Soros head fake on gold

George Soros, perhaps the planet's most famous (or infamous) billionaire trader, recently caused a raucous among gold bugs and bears alike with this comment at the recent World Economic Forum in Davos, the so-called summit in late January 2010 of billionaire financiers, global bankers, media moguls, and government heads of state:

When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.

Many interpreted this comment that Soros was bearish on gold, and that its decade-long bull market was finally over, after more than quadrupling since 2001.

Within that context, here's a very interesting development in what George Soros' hedge fund has done--and not what he has said.

http://www.bloomberg.com/apps/news?pid=20603037&sid=aKs0jaibTSmY
Billionaire George Soros’s Soros Fund Management LLC more than doubled its holding in the biggest gold exchange-traded fund in the fourth quarter after bullion advanced 8.9 percent to a record.

The $25 billion New York-based firm became the fourth- largest holder in the SPDR Gold Trust, adding 3.728 million shares valued at $421 million, according to a filing with the U.S. Securities and Exchange Commission yesterday. Its investment was worth about $663 million, the fund’s largest single investment, as of Dec. 31.

Which begs the question: if he expected gold to be a bubble about to tumble in price, why would he double down on gold? Sounds to me like George Soros is "talking down his book" to throw his followers off his trail. "Do as I do, not as I say" seems highly appropriate advice here.

Remember: Soros became a billionaire not by telegraphing his next move--he became wealthy by fooling others into taking the losing side of a trade. For every buyer, there is a seller, and for every seller, there is a buyer. So despite his rhetoric, Soros has been a buyer of gold, not a seller. Add to the list of big hedge funds who were net purchasers of gold last year, including John Paulson, David Einhorn, Kyle Bass, Jim Rogers, Paul Tudor Jones, and one has to wonder who has more credibility: billionaire hedge fund managers who correctly bet on a subprime mortgage crisis exploding into a global financial meltdown--or government economists and leaders who totally missed the real estate bubble and bust?

Besides, who would you rather take sides with: successful billionaires with track records--or retail sellers of grandma's jewelry for 20 cents on the dollar after watching Cash4Gold commercials?

Michael Vachon, a spokesman for Soros, declined to comment on Soros’s investments.

Ya think?

See disclaimers on the sidebar.

Disclosure: long gold and silver mining shares
Posted by Gaucho Greg at February 18, 2010
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1 comment:

  1. Gaucho Greg February 18, 2010 at 10:14 AM

    My friend Dick made a keen observation: "Do you think he just wanted to drive the price of gold down so he could buy it cheaper - that would be my guess."

    My response: "uuummmm,,,yes....the same thing the Chinese were attempting to do--waiting for a lower price, but the Indian central bank caught them off guard and snapped up half the IMF's planned sale of 400 tons last year.

    The IMF "announced" they will sell the other half (after "announcing" the full 400 tons last year). As Sinclair says, they do this to fool the public into thinking the market will be flooded with gold, driving the price lower, and sure enough, gold dropped $14 yesterday. But the last time the IMF or other central banks "announced" these planned sales, it did drive prices lower temporarily, but they did this all during the 1970's. And guess when gold prices started climbing?

    Also, with every 5 year agreement to put limits on central banking selling, the cap is smaller, and the CB's aren't even close to reaching their allocated limits.

    I suspect the fiscally weaker countries like Italy will need to sell some of their gold to raise funds, but the stronger emerging countries will snap them up. Plus, as you know, Russian and Chinese central bans are hoarding their gold by buying from their own mines at a cheaper price--outside the open market.

    So like Soros, the Chinese are talking down their book as if they expect lower prices, but like the shorts in ARNA and BCRX, they are merely shaking out the weak hands and accumulating. The horse has been out of the barn--for 10 years actually, but these guys still get away with this because most people have short memories.

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